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DanielleCPA, Certified Public Accountant (CPA)

Category: Tax

Satisfied Customers: 793

Experience: Years of Experience in Business & Personal Taxes

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Complicated tax question. My parents paid half of my downpayment

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Complicated tax question. My parents paid half of my downpayment on a condo I purchased five years ago. My husband and I wanted to re-finance the condo and the bank said it was easiest to get approval for the loan from just my husband and my credit.

We have been approved for the loan and now they are finalizing logistics with regard to the title. It has only just come up that if my parents are removed from the title, there may be some serious tax consequences for me.

Question is (1) can my parents stay on the title even though the loan was approved for just my husband and I? (2) If my parents come off the title, is there any way to avoid serious gift taxation (i.e. can we put a separate legal document together to say they still own x% of the condo?)

1) It is possible for individuals to be listed on the deed but not on the mortgage note, although lenders may be reluctant to do this. This is something you should work with your particular mortgage lender on.

DanielleCPA :

2) It is very unlikely you will have serious gift tax consequences for a few reasons.

DanielleCPA :

First, understand that gift taxes are not the responsibility of the recipient, but rather the responsibility of the giver.

DanielleCPA :

In this case, that would obviously be your parents.

DanielleCPA :

Second, there are a few exclusions that will make it unlikely your parents will have to pay any gift taxes on this gift, but will probably still have to file a return.

DanielleCPA :

First, only gifts in excess of $14,000 per person are considered taxable.

Customer:

My parents contributed $200k to the initial down payment...

DanielleCPA :

If your parents are both making a gift to you and your husband, there is a potential $56,000 that could be excluded right off the top.

Customer:

That is good news at least! Do you know what the gift tax is above the $56 k?

DanielleCPA :

Second, the lifetime gifting exclusion in 2013 is $5,250,000 per individual. Any amounts gifted that fall above the $56K are still going to be excluded from tax if your parents have not made more than $10,500,000 in reportable gifts in their lifetimes.

DanielleCPA :

Each of them will still need to file a gift tax return, Form 709, to report that they made a gift above the $14K limits, but no tax will be due as long as they under the lifetime exclusion.

Customer:

That is fantastic news - thank you!

DanielleCPA :

You're welcome!

DanielleCPA :

Glad I could put your mind at ease

DanielleCPA :

Did you have any other questions?

Customer:

Just to be clear - because this falls under the $5mm lifetime exemption rule - my parents would not have to pay tax on this gift. And because I would be the recipient, I would also not have to pay tax on this gift?